Scrimpfest in the West

The posh St. Regis Resort at Monarch Beach in Southern California offers pregnant couples a lavish package vacation called the "Last Hurrah." But in late September, that moniker might have been better applied to the $440,000 weeklong retreat American International Group held there for some of its top sales agents -- less than a week after the federal government shored up the troubled insurance giant with an $85 billion loan.

That blatant display of corporate entitlement isn't the only way the financial crisis has touched the West. Frozen credit and the plunging stock market hit some of the region's states -- already struggling with revenue declines from the collapse of their once-bullish housing markets -- doubly hard. California, which accounted for one-third of the nation's home foreclosures in August, has pulled in $1.1 billion less tax revenue than expected since the beginning of the fiscal year in July, a gap state officials fear could grow past $3 billion. This is on top of a $15 billion shortfall that led to thousands of layoffs in August and delayed passage of the current $103.4 billion budget a record 85 days. In Nevada, lawmakers have cut $1.2 billion in spending, or about 16 percent of the state's general fund, since January, tourism and gambling are sliding, and tax revenues have dropped another $18 million below projections made in June. Gov. Jim Gibbons, R, warns that the state may need to cut spending at least another 14 percent when the Legislature reconvenes in February. Arizona -- which wrestled with a $1.9 billion gap before adopting a $9.9 billion budget this summer -- is now facing revenues projected to be $700 million to $1.1 billion less than expected this fiscal year.

Some states sell bonds to help cover expenses like payroll and public education in the short term when cash flow is sluggish. But that possibility looked murky after the collapse of Lehman Brothers in mid-September brought the municipal bond market to a standstill. Worried that California could temporarily run out of dough by the end of October, Gov. Arnold Schwarzenegger sent a letter to U.S. Treasury Secretary Henry Paulson warning that the state might need a $7 billion federal emergency loan. Just a week later, the state, slightly more optimistic after Massachusetts successfully sold hundreds of millions of dollars worth of bonds, went to market with a slimmed-down $4 billion bond package and a rhyming radio ad campaign from Schwarzenegger to help "keep California great and invest in our Golden State." Meanwhile, California schools were bracing for longer-term budget cuts, and local governments across the state mulled layoffs, hiring freezes, tapping reserves, and even shutting off thousands of streetlights.

Oil, gas and agriculture have kept other Western states afloat. Wyoming anticipates a $100 million budget surplus this year, and Montana is forecasting an approximately $500 million surplus for the next two years, despite the current economic uncertainty. But the crunch has touched at least one energy-boom state. Colorado's state government, despite expecting significant increases in oil and gas tax revenues, instituted a hiring freeze in late September in the face of a projected $100 million revenue shortfall. The state's gas-rich areas are still thriving, though. Garfield County, for example, has a growing budget and plans to fund big-ticket extras like an addition to the sheriff's office in the coming year, even as the nearby resort communities of Aspen and Snowmass have begun tightening their municipal belts.

In the Northwest, all the financial hoopla has put an extra shine on secession. The movement to turn 12 rural counties on the Oregon-California border into the new state of Jefferson -- a sort of Libertarian utopia -- has gained a whole new life in recent weeks. Registered users of the movement's Web site have suddenly leapt into the hundreds, reports the San Francisco Chronicle, and supporters are hoping to collect 1 million signatures to eventually get a statehood advisory on the California ballot.